Saturday, March 1, 2008

Prop 2 1/2 tax break for seniors is a bad idea

This week, the house passed a measure allowing cities and towns to exempt certain senior citizens from tax hikes tied to Proposition 2 1/2 overrides. It's a bad idea, and the either senate should reject the measure or the governor should veto it. Here is the story from the AP:

[L]awmakers are pushing a bill that would let cities and towns exempt seniors earning less than $60,000 a year from the overrides. Backers say the bill is a tax break for seniors, but critics say it's just a way to help push through property tax hikes.

On Thursday, House lawmakers overwhelmingly approved the bill, which now heads to the Senate....

[T]he new bill more explicitly links the tax breaks to the property tax override itself -- and that's irking longtime supporters of Proposition 2 1/2, who say the bill is just a way to entice many seniors to look the other way.

"Seniors are our first line of defense against overrides," said Barbara Anderson of the anti-tax group Citizens for Limited Taxation. Anderson helped lead the charge for the Proposition 2 1/2 law.

"Senior citizens are defeating these overrides and they are trying to give them a reason not to vote," she said.

Before you think that I've somehow become conservative in my middle age--believe me the thought that I agree with Barbara Anderson on anything is enough to make me want to take a shower--let me explain. The problem with the bill isn't that it will get seniors to suddenly pass overrides, it's that the bill give tax breaks based not on a progressive idea of who can't afford to pay, but gives breaks to a particular group based only on demographics. The bill won't remove the fight over prop 2 1/2 overrides, it will just change the fight over who should pay.

Certainly many seniors have a difficult time affording the property taxed they already owe, not to mention an additional levy thanks to an override. But there are plenty of homeowners under 65 that fill into the same situation. Not only do these families not get a break, but they end up paying a higher tax rate to make up the difference.

Here is a very simplified example: Let's say a town with 5,000 taxpayers decides that it needs to pass a $2 million override to pay for a new fire house. Splitting the override among all taxpayers would mean an average tax increase of $400. But let's say that 30% of the population is over 65 and makes under $60,000. In this case, 1,500 taxpayers would not have any increase at all, and the other 2,500 taxpayers would have an average tax increase of $571.

Should a young family of four that makes $58,000 and holds a mortgage pay $571 additional dollars in taxes, while a pair of well-off retirees with a $58,000 annual pension, no children at home, and no mortgage to pay off is not hit with the tax increase at all? Of course not. But that's what will happen under this plan.

The effect of that will be to change the debate on prop 2 1/2 issues. The debate will first be about whether or not to pass the abatement for seniors. Will those taxpayers that will be footing the entire bill be apt to vote against an abatement, since it will mean higher levies for them? Very possibly. Will seniors automatically vote in favor of an override if the abatement is passed? Not necessarily. Despite Barbara Anderson's Pavlovian reaction to the word "taxes", I think this will make overrides harder to pass since it may now take two divisive votes to get an override through instead of one.

Regardless of what the impact will be, the legislature should not be granting tax breaks to a class of people based solely on their demographics. If they want to argue for a truly progressive tax break that would affect all homeowners under a certain threshold, they could gain my support (although I think that the entire community should be pitching in for local projects like the ones that generally require overrides).

Even better, the legislature should embrace the proposal to allow cities and towns to pass local option meal taxes in an effort to raise revenues in lieu of property taxes.

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